The Startups Act provides for free incorporation procedures for emerging companies

Last Friday, the Council of Ministers approved the referral to the Spanish Parliament of the Bill to promote the ecosystem of emerging companies, better known as the Startups Law, which aims to support the ecosystem of innovative technology-based companies, attracting investment and talent.

The Bill provides for free notary and registrar fees for the incorporation of limited companies, as well as for publication in the Official Gazette of the Commercial Registry (BORME); the creation of the company by telematic means; and the non-obligation to obtain a foreigner’s identification number (NIE) for non-resident investors, requiring only that they and their representatives obtain tax identification numbers (NIF). It should be recalled that with the approval of the Crea y Crece Law, which is now going through parliament, it will be possible to set up a company with just one euro of share capital.

With this Bill, the Government adapts the applicable framework to the specificities of start-ups, in the administrative, tax, civil and commercial spheres, in order to support them throughout their life cycle, particularly in their early stages. To this end, it promotes the creation and growth of innovative digital-based high-growth start-ups and reinforces measures to attract talent and international investors, responding to the uniqueness of this type of companies and the main demands of the sector.

The Startups Law is one of the milestones foreseen in the Recovery, Transformation and Resilience Plan. The Bill brings Spain into line with the most attractive countries in Europe for attracting investment, entrepreneurship and talent. It also responds to the recently signed EU Startups Nations Standard: a set of practices designed to foster entrepreneurship in the European Union and encourage the creation of new innovative companies by creating the conditions to favour their scalability.

This Bill is accompanied by various measures implemented by the Government to promote the financing of start-ups in Spain, including the FondoICO Next Tech, with an investment target of 4,000 million euros, designed to provide financial support to companies in the growth phase. And the ENISA funding line, which has 51 million euros, aimed at the creation of start-ups led by women, with the aim of reducing the gender gap in the field of innovative entrepreneurship.

Likewise, this Bill is part of the structural reforms of the Recovery Plan aimed at improving business demographics and improving the business climate, complementing the recently adopted Government Bill on Crea y Crece and the Bankruptcy Reform Bill, currently in the process of being finalised.

Startup identification, the basis for boosting the startup ecosystem

The Bill defines the concept of startup and targets companies that are newly created or less than 5 years old (7 years in the case of companies in biotechnology, energy, industrial and other strategic sectors or that have developed proprietary technology designed entirely in Spain), are independent of other companies, are not listed on a stock market, do not distribute or have not distributed profits, are innovative in nature and have an annual turnover of up to 5 million euros.

A one-stop shop is also established, the Empresa Nacional de Innovación SME (ENISA), which will grant the declaration of the innovative nature of the company in order for it to be eligible for the benefits introduced by the bill.

The Entrepreneurship Attention Points (PAE) and the National Entrepreneurship Office (ONE) will act as information points on support measures and aid, supported by a reference web portal in Spanish and English.

Fiscal attractions

This Bill incorporates important tax measures to attract and recover national and international talent, attract investment and encourage the creation of digital hubs in Spain.

Thus, the tax rate on Corporate Income Tax and Non-Resident Income Tax is reduced from the general rate of 25% to 15% in the first four years after the taxable income is positive.

The amount of the tax exemption for stock options is increased from 12,000 to 50,000 euros per year in the case of delivery by start-ups of shares or holdings deriving from the exercise of call options and the conditions for the generation of treasury stock in limited liability companies are made more flexible.

The maximum deduction base for investment in new or recently created companies is also increased (from 60,000 to 100,000 euros per year), the deduction rate (from 30% to 50%), as well as the period in which it is considered recently created, which increases from 3 to 5 years, in general, or to 7 years for companies in certain sectors.

Deferral of the tax liability for corporate income tax or non-resident income tax in the first two years after the tax base is positive, without guarantees or interest for late payment, is allowed for a period of 12 and 6 months respectively. And the obligation to make payments in instalments for corporate income tax and non-resident income tax in the two years following the year in which the tax base is positive is eliminated.

Another of the advances included is that relating to the figure of “digital nomads”, i.e. those entrepreneurs and teleworkers who move to Spanish territory. These people will have the possibility of residing and working in Spain for 5 years, as well as benefiting from the special tax regime and paying non-resident income tax. With the aim of repatriating talent, the general requirements for accessing this regime are relaxed (the requirement of prior non-residence in Spain is reduced from 10 to 5 years).

As a social incentive, it is also worth highlighting the elimination for 3 years of the double Social Security contribution in the case of pluriactivity, for entrepreneurs who simultaneously work for an employer as an employee.

The Bill includes other measures in favour of emerging companies, such as the promotion of innovative public procurement or exemption from the cause of dissolution when losses reduce their net worth to less than half of their share capital, provided that it is not appropriate to request a declaration of insolvency, until three years have elapsed since their incorporation.

Circulation of knowledge

The Draft Law also encourages collaboration between public administrations, universities, public research bodies and technology centres. It makes a general and basic regulation on regulated testing environments based on the recent successful experience of the financial sector sandbox. In this sense, it will allow the testing of start-ups’ innovations for one year, in a controlled environment, to assess the usefulness, viability and impact of technological innovations in the different sectors of productive activity.

Finally, it should be noted that this Bill aims to respond to the present and future needs of start-ups. To this end, it includes a continuous review mechanism and the creation of the National Forum of Emerging Companies, as a meeting point between the sector and the Public Administrations.